New Jersey Continues to Champion Policyholders’ Rights in Champion Dyeing
By Renier P. Pierantoni
“The theory of insurance is that of transferring risks . . .” 1
Keeping with its tradition as a pro-policyholder state, New Jersey’s appellate court
recently took away one of the tools the insurance industry has used to chip away at the
very coverage carriers promised would provide comprehensive relief for a broad variety
of risks and liabilities (i.e., comprehensive general liability insurance, or “CGL”
insurance). In its ruling, the appellate court found that coverage under occurrence-based
and claims-made policies for continuous and progressive damage or injuries should be
allocated so as to maximize coverage for covered risks. In so doing, New Jersey has
reminded insurers that they must live up to the terms of their insuring agreements with
their insureds by providing comprehensive coverage for those risks.
In Champion Dyeing & Finishing Co., Inc. v. Centennial Ins. Co. and North River Ins.
Co., Superior Court of New Jersey, Appellate Division, Case No. A-4811-00T5
(November 19, 2002) (unpublished), the appellate court provided clear guidance on how
By Renier P. Pierantoni
“The theory of insurance is that of transferring risks . . .” 1
Keeping with its tradition as a pro-policyholder state, New Jersey’s appellate court
recently took away one of the tools the insurance industry has used to chip away at the
very coverage carriers promised would provide comprehensive relief for a broad variety
of risks and liabilities (i.e., comprehensive general liability insurance, or “CGL”
insurance). In its ruling, the appellate court found that coverage under occurrence-based
and claims-made policies for continuous and progressive damage or injuries should be
allocated so as to maximize coverage for covered risks. In so doing, New Jersey has
reminded insurers that they must live up to the terms of their insuring agreements with
their insureds by providing comprehensive coverage for those risks.
In Champion Dyeing & Finishing Co., Inc. v. Centennial Ins. Co. and North River Ins.
Co., Superior Court of New Jersey, Appellate Division, Case No. A-4811-00T5
(November 19, 2002) (unpublished), the appellate court provided clear guidance on how
continuous and progressive damage claims that fall within coverage provided by
occurrence-based and claims-made policies are allocated, thus striking a blow to the
insurance industry’s ceaseless efforts to have the insured bear the bulk of losses from
progressive damage or injuries.
I. Mere ·Availability· of EIL Claims-made Coverage Is Not
“Real” Insurance When Determining Uninsured Years
One of the most important coverage questions the Champion court answered was what
constitutes “uninsured” years of coverage for the purposes of allocating part of the risk to
an insured under New Jersey law. An “uninsured” or “self-insured” year is a period of
time where the insured has decided to “go bare” by not purchasing insurance coverage
where such was available (i.e., “self-insuring for all the risk incurred in that period”).2
Under New Jersey law, as a result of an insured’s election to “go bare,” the insured must
bear a share of the risks and losses that take place within “uninsured” or “self-insured”
periods. This assumes, however, that coverage was truly “available” at the time the
policyholder decided to “go bare.”
Beginning in 1986, the insurance industry incorporated into their CGL policies the socalled
“absolute pollution exclusion.” Some years before the advent of this exclusion, the
industry also began selling “Environmental Impairment Liability” (“EIL”), “Pollution
Liability” or “Environmental Protection Liability” policies. As the Champion court
pointed out, these policies were “virtually always as written on a ‘claims-made’ basis.” 3
Claims-made policies, unlike occurrence-based policies, limit the insurer’s exposure to
only those losses from claims that are “made” against the insured and, as may be required
in certain policies, “reported” to the carrier within a definite period of time. In short,
claims-made policies insure the policyholder for only those risks and losses that result in
“claims” being “made” against the insured during the policy term.
By contrast, the occurrence-based policy insures the policyholder for risks and losses that took place
when the policy was in effect, regardless of when claims for such injuries are made. 4
Moreover, attempting to further limit their exposure, carriers incorporated for most
claims-made policies written after 1986 what is sometimes referred to as a “sunrise”
endorsement or provision, which had the effect of retrospectively excluding coverage for
those “occurrences” that “happened” or, as the Champion court stated, had an “inception”
prior to a certain date. 5 As a result, an insured covered by pre-1986 occurrence-based
policies and subsequent claims-made policies containing a “sunrise” retro provision, was
left with a gap in coverage, as was true for the insured in Champion.
In Champion, the insured sought indemnification from two carriers, North River
Insurance Company (“North River”) and Centennial Insurance Company (“Centennial”),
for costs relating to the investigation and remediation of property damage caused by
underground fuel tanks over a twenty-year period. It was established that the
underground tanks discharged by-product into the ground beginning in January 1980, and
that such discharge continued until November 1997, the time the insured discovered the
property damage and had the tanks removed. Both North River and Centennial issued
primary and excess CGL occurrence-based insurance coverage to Champion from 1980-
1982 and 1983-1986, respectively. 6
Since “EIL coverage was only available on a claims-made basis” to Champion after
1986,7 Champion did not have access to any “real” environmental coverage for pre-1986
“happenings” given the presence of a “sunrise” retro period in its claims-made policies.
This effectively tied Champion’s hands, leaving it susceptible under New Jersey’s
allocation scheme (pro rata share of the risk = amount of policy limits multiplied by the
number of years of coverage) to be forced to bear the risk for losses in uninsured periods.
Recognizing the blatant inequity of having Champion bear its share of the loss in this
situation, the Champion court held that demonstrating EIL insurance was merely
“available” during post-1986 absolute pollution exclusion periods was not enough, since
such a showing did not equate to insurance that “could have been purchased that covered
the precise risk that [was] manifested.” 8 In short, the court concluded that there must be
evidence that not only was EIL insurance “available” on the market, but that the
insurance was obtainable and affordable to cover the specific risk for which coverage is
sought. 9
Champion proved, through both its own and defendants’ expert testimony, that EIL
claims-made coverage, while on the market as of 1987, was not accessible for “preexisting
problems with underground storage tanks” since it did not represent “insurance
covering the risk exist[ing] at the precise time that damage becomes known” 10 As such,
the EIL coverage did not represent “real” insurance so as to cover Champion for the very
loss that manifested itself in November 1997: “Coverage would not exist for leakage
commencing prior to a policy’s retro coverage date, even if the leakage was not manifest
until a date within the retro period.” 11
II. Pre-1986 Occurrence-Based Policies, Not The Insured, Must Cover Post-1986
Loss Where “Available” Claims-made Coverage Was Unattainable
The Champion court further held that if post-1986 policies do not provide coverage to an
insured for progressive and continual property damage and/or bodily injuries, then pre-
1986 occurrence-based policies will be obligated “to indemnify for subsequent damages
attributable to an injury occurring during the relevant policy period” where no claimsmade
coverage could have been obtained. 12 Better yet, the Champion court further went
on to hold that, even if Champion was able to purchase EIL claims-made coverage in
1997, but decided to “go bare,” Champion would only have been left to bear its pro rata
share of the loss for that one year where claims- made coverage was available, and not
the brunt of the entire post-1986 uninsured period, since “[o]nly the amount of coverage
afforded in the year that the claim was made would have been available to Champion.” 13
Notwithstanding the court’s ruling that Champion did not “go bare” from 1986 to 1997,
both North River and Centennial, determined to avoid their insuring obligations to
Champion for those years, argued that occurrence-based policies do not “operate
prospectively to afford coverage for injuries sustained after the policy period has ended.”
14 This baseless and unfounded departure from New Jersey law was summarily rejected
by the Champion court, which held that “an insurer’s obligation to indemnify for
subsequent damages attributable to an injury occurring during the relevant policy period”
was well established long ago by the New Jersey Supreme Court in Owens-Illinois and its
interpretation of typical policy language providing coverage for “all sums which the
insured shall become legally obligated to pay.” 15 Citing to Owens-Illinois and New
Jersey’s pro-policyholder tradition, the Champion court found that limiting such coverage
to only that property damage and bodily injury which took place within the policy period
“is intuitively suspect and inconsistent with our developing jurisprudence in the field of
toxic torts.”
New Jersey courts, as well as courts from other jurisdictions, may decide the issue of
whether claims-made coverage was “available” based, in part, on the language set forth
in the policy’s “sunrise” retro provision. As a result, policyholders would be well-advised
to carefully analyze their occurrence-based and claims-made coverage in light of the
Champion decision.
________________________
1. Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437, 472 (1994).
2. Id., 138 N.J. at 464.
3. Champion Dyeing & Finishing Co., Inc. v. Centennial Ins. Co. and North River
Ins. Co., Case No. A-4811-00T5, slip. op. at 6 (Sup. Ct. N.J., App. Div.
November 19, 2002).
4. John D. Shugrue (Zevnik Horton LLP), et al., Insurance Coverage Disputes
§2.02[1][b] (2000).
5. Champion Dyeing, Case No. A-4811-00T5, slip. op. at 6.
6. While the North River and Centennial policies contained so-called “sudden and
accidental pollution” provisions, this exclusionary language is considered
unenforceable in New Jersey based upon the state Supreme Court’s landmark
decision in Morton Intern. Inc. v. General Acc. Ins. Co. of America, 134 N.J. 1
(1993), cert. denied, 512 U.S. 1245 (1994). Accordingly, these policies will
be triggered for covered losses, leaving how much of the total loss each carrier
had to bear as the remaining issue to be decided (i.e., allocation).
7. Champion Dyeing, Case No. A-4811-00T5, slip. op. at 10.
8. Id., at 11.
9. Id., at 17.
10. Id., at 12.
11. Id., at 14.
12. Id., at 18.
13. Id., at 19.
14. Id., at 19.
15. Id., at 18-19; Owens-Illinois, 138 N.J. at 465-466.
insurance industry’s ceaseless efforts to have the insured bear the bulk of losses from
progressive damage or injuries.
I. Mere ·Availability· of EIL Claims-made Coverage Is Not
“Real” Insurance When Determining Uninsured Years
One of the most important coverage questions the Champion court answered was what
constitutes “uninsured” years of coverage for the purposes of allocating part of the risk to
an insured under New Jersey law. An “uninsured” or “self-insured” year is a period of
time where the insured has decided to “go bare” by not purchasing insurance coverage
where such was available (i.e., “self-insuring for all the risk incurred in that period”).2
Under New Jersey law, as a result of an insured’s election to “go bare,” the insured must
bear a share of the risks and losses that take place within “uninsured” or “self-insured”
periods. This assumes, however, that coverage was truly “available” at the time the
policyholder decided to “go bare.”
Beginning in 1986, the insurance industry incorporated into their CGL policies the socalled
“absolute pollution exclusion.” Some years before the advent of this exclusion, the
industry also began selling “Environmental Impairment Liability” (“EIL”), “Pollution
Liability” or “Environmental Protection Liability” policies. As the Champion court
pointed out, these policies were “virtually always as written on a ‘claims-made’ basis.” 3
Claims-made policies, unlike occurrence-based policies, limit the insurer’s exposure to
only those losses from claims that are “made” against the insured and, as may be required
in certain policies, “reported” to the carrier within a definite period of time. In short,
claims-made policies insure the policyholder for only those risks and losses that result in
“claims” being “made” against the insured during the policy term.
By contrast, the occurrence-based policy insures the policyholder for risks and losses that took place
when the policy was in effect, regardless of when claims for such injuries are made. 4
Moreover, attempting to further limit their exposure, carriers incorporated for most
claims-made policies written after 1986 what is sometimes referred to as a “sunrise”
endorsement or provision, which had the effect of retrospectively excluding coverage for
those “occurrences” that “happened” or, as the Champion court stated, had an “inception”
prior to a certain date. 5 As a result, an insured covered by pre-1986 occurrence-based
policies and subsequent claims-made policies containing a “sunrise” retro provision, was
left with a gap in coverage, as was true for the insured in Champion.
In Champion, the insured sought indemnification from two carriers, North River
Insurance Company (“North River”) and Centennial Insurance Company (“Centennial”),
for costs relating to the investigation and remediation of property damage caused by
underground fuel tanks over a twenty-year period. It was established that the
underground tanks discharged by-product into the ground beginning in January 1980, and
that such discharge continued until November 1997, the time the insured discovered the
property damage and had the tanks removed. Both North River and Centennial issued
primary and excess CGL occurrence-based insurance coverage to Champion from 1980-
1982 and 1983-1986, respectively. 6
Since “EIL coverage was only available on a claims-made basis” to Champion after
1986,7 Champion did not have access to any “real” environmental coverage for pre-1986
“happenings” given the presence of a “sunrise” retro period in its claims-made policies.
This effectively tied Champion’s hands, leaving it susceptible under New Jersey’s
allocation scheme (pro rata share of the risk = amount of policy limits multiplied by the
number of years of coverage) to be forced to bear the risk for losses in uninsured periods.
Recognizing the blatant inequity of having Champion bear its share of the loss in this
situation, the Champion court held that demonstrating EIL insurance was merely
“available” during post-1986 absolute pollution exclusion periods was not enough, since
such a showing did not equate to insurance that “could have been purchased that covered
the precise risk that [was] manifested.” 8 In short, the court concluded that there must be
evidence that not only was EIL insurance “available” on the market, but that the
insurance was obtainable and affordable to cover the specific risk for which coverage is
sought. 9
Champion proved, through both its own and defendants’ expert testimony, that EIL
claims-made coverage, while on the market as of 1987, was not accessible for “preexisting
problems with underground storage tanks” since it did not represent “insurance
covering the risk exist[ing] at the precise time that damage becomes known” 10 As such,
the EIL coverage did not represent “real” insurance so as to cover Champion for the very
loss that manifested itself in November 1997: “Coverage would not exist for leakage
commencing prior to a policy’s retro coverage date, even if the leakage was not manifest
until a date within the retro period.” 11
II. Pre-1986 Occurrence-Based Policies, Not The Insured, Must Cover Post-1986
Loss Where “Available” Claims-made Coverage Was Unattainable
The Champion court further held that if post-1986 policies do not provide coverage to an
insured for progressive and continual property damage and/or bodily injuries, then pre-
1986 occurrence-based policies will be obligated “to indemnify for subsequent damages
attributable to an injury occurring during the relevant policy period” where no claimsmade
coverage could have been obtained. 12 Better yet, the Champion court further went
on to hold that, even if Champion was able to purchase EIL claims-made coverage in
1997, but decided to “go bare,” Champion would only have been left to bear its pro rata
share of the loss for that one year where claims- made coverage was available, and not
the brunt of the entire post-1986 uninsured period, since “[o]nly the amount of coverage
afforded in the year that the claim was made would have been available to Champion.” 13
Notwithstanding the court’s ruling that Champion did not “go bare” from 1986 to 1997,
both North River and Centennial, determined to avoid their insuring obligations to
Champion for those years, argued that occurrence-based policies do not “operate
prospectively to afford coverage for injuries sustained after the policy period has ended.”
14 This baseless and unfounded departure from New Jersey law was summarily rejected
by the Champion court, which held that “an insurer’s obligation to indemnify for
subsequent damages attributable to an injury occurring during the relevant policy period”
was well established long ago by the New Jersey Supreme Court in Owens-Illinois and its
interpretation of typical policy language providing coverage for “all sums which the
insured shall become legally obligated to pay.” 15 Citing to Owens-Illinois and New
Jersey’s pro-policyholder tradition, the Champion court found that limiting such coverage
to only that property damage and bodily injury which took place within the policy period
“is intuitively suspect and inconsistent with our developing jurisprudence in the field of
toxic torts.”
New Jersey courts, as well as courts from other jurisdictions, may decide the issue of
whether claims-made coverage was “available” based, in part, on the language set forth
in the policy’s “sunrise” retro provision. As a result, policyholders would be well-advised
to carefully analyze their occurrence-based and claims-made coverage in light of the
Champion decision.
________________________
1. Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437, 472 (1994).
2. Id., 138 N.J. at 464.
3. Champion Dyeing & Finishing Co., Inc. v. Centennial Ins. Co. and North River
Ins. Co., Case No. A-4811-00T5, slip. op. at 6 (Sup. Ct. N.J., App. Div.
November 19, 2002).
4. John D. Shugrue (Zevnik Horton LLP), et al., Insurance Coverage Disputes
§2.02[1][b] (2000).
5. Champion Dyeing, Case No. A-4811-00T5, slip. op. at 6.
6. While the North River and Centennial policies contained so-called “sudden and
accidental pollution” provisions, this exclusionary language is considered
unenforceable in New Jersey based upon the state Supreme Court’s landmark
decision in Morton Intern. Inc. v. General Acc. Ins. Co. of America, 134 N.J. 1
(1993), cert. denied, 512 U.S. 1245 (1994). Accordingly, these policies will
be triggered for covered losses, leaving how much of the total loss each carrier
had to bear as the remaining issue to be decided (i.e., allocation).
7. Champion Dyeing, Case No. A-4811-00T5, slip. op. at 10.
8. Id., at 11.
9. Id., at 17.
10. Id., at 12.
11. Id., at 14.
12. Id., at 18.
13. Id., at 19.
14. Id., at 19.
15. Id., at 18-19; Owens-Illinois, 138 N.J. at 465-466.
